Four Seasons gets $3.7 billion takeover offer

Team of investors includes Four Seasons chief, Saudi prince, Bill Gates

By

WilliamSpain

CHICAGO (MarketWatch) -- Becoming the latest target of a trend toward taking hotel operators private, Four Seasons Hotels Inc. said Monday that it has received an offer of $3.7 billion from an investor group that includes its own chief executive as well as Saudi Prince Alwaleed Bin Talal and Microsoft Chairman Bill Gates.

Four Seasons
FS
(FSH) said the $82-a-share offer came from a team that includes Isadore Sharp, the hotelier's chairman and CEO; controlling shareholder Triples Holdings Ltd.; Kingdom Hotels, which is owned by Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud; and Cascade Investment, which is owned by Gates.

The cash offer reflects a 28% premium to the stock's closing price Friday on the New York Stock Exchange.

Shares rose 29.2% Monday to close at $82.50 after soaring as high as $84.25 earlier in the session.

Like the entire luxury-hotel category, Fours Seasons has been boosted by a boom in high-end business and leisure travel. While its profits through the first half rose just 7%, that figure was weighed down by a tax charge, and the company posted double-digit jumps in virtually every meaningful industry measure, including a rise of better than 12% in revenue per available room.

That kind of performance has drawn the attention of private-equity groups; this would be the third transaction in the lodging and leisure category in the past year, following the buyouts of Fairmont and Intrawest. Also on the table is a $15 billion, or $81 a share, offer from Apollo Management and Texas Pacific Group for gambling giant Harrah's Entertainment Inc.
HET, +0.94%

The deal "is the best way to preserve and expand the long-term strategy, vision and core values of Four Seasons," Sharp said in a statement. "Having given this proposal very careful consideration, this transaction, with these investors, is the only one I am prepared to pursue."

If the transaction is completed, Triples would hold about 10% of the shares of Four Seasons through a separate class of special voting shares, with the balance split between Kingdom Hotels and Cascade. The deal is subject to shareholder and regulatory approval.

Sharp would remain chairman and chief executive of Four Seasons. He also would be able to realize proceeds from a 1989 incentive plan that would pay him $288 million. The company's headquarters would remain in Toronto.

In a conference call, Sharp acknowledged that the announcement "has probably come as a bit of a surprise," saying that "the most important point for everyone to understand is that this proposal does not represent a change in strategy, direction, management or leadership" of the company.

"I was not planning to undertake this sort of transaction" until someone told him a few months back that there could be some long-term strategic investors "who might be interested in facilitating an orderly transition of ownership of Four Seasons to a privately held company," he added. "I was intrigued by this suggestion."

Sharp also noted that "a change of ownership of Four Seasons was ultimately inevitable because someday my children would have needed to sell."

The board of Four Seasons established a special committee, led by Ronald Osborne, to evaluate the offer, make recommendations to the board, and supervise the preparation of a formal valuation in connection with the proposed deal.

Kingdom Hotels has played a part in purchases of several chains, including Fairmont.

Considering the Four Seasons deal's premium, the offer would be "hard to turn down," wrote William Truelove of UBS in a note to investors. "Making this deal even more likely is that the management of the Four Seasons brand would remain in Toronto under Mr. Sharp's control. The combination of a favorable price with control looks too good to pass up."

However, Bill Lerner of Deutsche Bank pointed out that "these multiples are curiously strong -- particularly since there is virtually no underlying real estate -- and handily exceed the prior high-water mark for a going-private transaction in the hotel sector, which was set by Kingdom's acquisition of Fairmont in May.

"A going-private transaction could imply that the investor group may be planning to increase its direct investment in development opportunities (relative to historically conservative use of [the company's] balance sheet), but our sense is that the investor group also may have nonfinancial interests in privatizing the company."

For David Anders at Merrill Lynch, "given that all the parties have already been involved as long-term shareholders of the company and own many of the Four Seasons hotels that have been operated under long-term management agreements, we see this transaction as highly likely."

And that, he said, is further "reinforced by our belief that the entities looking to take Four Seasons private have a lower return requirement than a public investor and lower cost of capital."

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